Deal Analysis: Mahindra Buys Out Kinetic’s Assets

Deal Analysis: Mahindra Buys Out Kinetic’s Assets

By Pallavi S

  • 20 Aug 2008

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Firodias have finally settled for a JV rather than a sell-off. The Pune-based promoters of two-wheeler group Kinetic which has been struggling over the last few years has formed a joint venture with Mahindras. As per the deal, Mahindras will form a new company called Mahindra Kinetic in which M&M, the flagship group utility vehicle firm, will hold 80 per cent stake while Kinetic Motor will hold the balance 20 per cent. In effect, Mahindras are acquiring the assets of Kinetic Motor for Rs 110 crore while giving its shareholders a stake in a fresh JV in which it would hold the majority stake.

This structure would circumvent the open offer clause which would have been triggered if Mahindras had acquired a large stake in Kinetic Motor (a public listed firm) directly. Secondly, the deal unlocks some value for Kinetic Motor shareholders. This is because the firm has a market cap of just Rs 40 crore. The deal values the assets at around Rs 140 crore. But has the shareholder benefited?

What this deal structure does is that while Mahindras get to control the assets by investing Rs 110 crore, the money is not spent on paying off shareholders in an open offer (it would have meant per share price of around Rs 70 against Rs 20 currently) the money goes into expanding the operations. This is a very smart move by Mahindras. Now it is upto to the market to respond to the deal and if it believes in the management of Mahindras to turn around Kinetic’s business. The stock moved up 4.8 per cent today at BSE.


For Mahindras it means a ready entry into two-wheeler business expanding their presence in the auto sector. The two wheeler industry, the second largest producers in the world, is fairly large in India. Over the last one decade it has grown from 3 million units to 8 million units in FY’08. Domestic sales which comprise 93 per cent of the overall industry has grown from 3 million units to 7.2 million units with an annualised growth of 9.2 per cent.

They already are into tractors (through M&M as well as through Punjab Tractors which they acquired from Actis some time back) and have an exposure into passenger cars through the venture with Renault. An entry into two wheelers will mean they are only absent from the heavy commercial vehicles space.

Another acquisition led entry into that segment cannot be ruled out if the group’s recent postures are anything to go by. With a strong foundation in auto components through various acquisitions, it would make Mahindras the first full fledged auto company in the country in terms of segment presence.


For Firodias it means the end of the road in terms of management of two wheeler business which has the full range of light to medium powered vehicles– mopeds, scooters and motorcycles. The family has been struggling to keep the company afloat even before the two wheeler industry started facing demand squeeze due to interest rate increase. Despite a slew of launches it didn’t manage to make any dent into the strong leadership of Hero Honda, Bajaj Auto and TVS Motor.

While a JV will mean the Firodias will still notionally be the promoters of Kinetic Motor, the real management power will be with the Mahindras. Sulajja Firodia, the elder daughter of Arun Firodia, who had been heading Kinetic Motor will now become a non executive director of Mahindra Kinetic. The Firodias own 54.8 per cent in Kinetic Motor directly and indirectly through their listed auto component firm Kinetic Engineering. The deal will give them an indirect stake of around 11 per cent in the new JV firm. In terms of business presence now they are primarily into auto components business.


Besides the promoters there are also some other large shareholders of Kinetic Motor. This group includes Bennett Coleman & Co (which invests through its inventory of advertising space in various group media publications) which has 6.73 per cent, Citicorp (7.12 per cent) and Billion Ally (9.8 per cent) which recently picked preference shares in Kinetic Motor at a price of Rs 39(almost double the current market price). (In the picture: Sulajja Firodia Motwani, Joint MD, Kinetic Group)

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